Technology

Inflation vs Stagflation: What’s the Difference?

Did you know that the gross domestic product increased by nearly 7% in 2021 in the United States? 

The GDP plays a critical role in the economy, and when the percentage increases, so do the chances of inflation and stagflation. 

If you want to better understand the signs of inflation, there are a few factors to review. 

Continue reading to discover the differences of inflation vs stagflation and how they’ll affect your wallet! 

Spending 

One of the key differences between inflation vs stagflation is the spending habits of consumers.

With inflation, it’s common to see an increase in spending amongst households. This is due to having a strong economy, where people can afford items, even as the prices rise. When done at a slow pace, inflation helps businesses make money.

The spending habits during stagflation, however, decrease. In this instance, the economy is declining and people can’t afford to spend extra money. Spending also decreases since fewer people are working while prices dramatically increase. 

Prices 

Understanding What is Stagflation will help monitor prices and budget for your family.

Prices increases for goods and services in both inflation and stagflation. This is one of the only common characteristics of the two. Since the economy is strong with inflation, there is a high demand from consumers. 

Inflation is the most beneficial for businesses and consumers. Stagflation is not a good situation to be in with prices. The prices quickly rise in stagflation and there is a weak economy, leading to fewer consumers. 

There is a major imbalance in the economy during stagflation, which is why you need to know how comparable it is to inflation. 

Economic Growth

What is inflation without a booming economy that benefits everyone? 

Economic growth increases during inflation and decreases during stagflation. It’s common to see new businesses opening and more people buying houses during inflation. People have more disposable income with inflation, which helps fuel the economy even more. 

When it comes to stagflation, the economy halts productivity as prices continue to rise. Many layoffs and house foreclosures occur because stagflation influences the economy. 

Employment 

With new businesses opening and consumers spending more, unemployment rates decrease during inflation. 

More people are working during this time and making good money since the economy is thriving. The businesses can afford to hire more staff and invest in inventory to encourage consumers to buy. 

Unemployment levels increase, however, during stagflation. Fewer people are working, leading to a more unstable economy. 

Can You Tell the Difference Between Inflation vs Stagflation?

Knowing the differences between inflation vs stagflation can prevent you from spending money at the wrong time.

Paying attention to economic trends in the company will let you know how to save money. It’s important to follow the economy so that you don’t lose your job unexpectantly. Don’t be afraid to speak with a financial advisor if you are concerned about the economic state of the country. 

Make sure you read our blog for more information about the economy and how to financially prepare for the future! 

Christopher Stern

Christopher Stern is a Washington-based reporter. Chris spent many years covering tech policy as a business reporter for renowned publications. He has extensive experience covering Congress, the Federal Communications Commission, and the Federal Trade Commissions. He is a graduate of Middlebury College. Email:[email protected]

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